TAX MANAGEMENT September 2017

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As per Budget 2017, individuals and HUF who pay rent of Rs 50,000 or abovewill have to deduct TDS at the rate of 5%. This has become effective since01.06.2017.

Up till 31st March 2017, only those individual/HUF have to deduct TDS @ 10% if Tax Audit is applicable to them.

Now all individuals and HUF have to deduct TDS @ 5% if they are paying rent of Rs 50,000 or more per month.

This change is basically done to ensure that people having large rental income must report their rental income in their income tax returns. The landlords can take credit of TDS against their total tax due while filing tax returns.

Interestingly, the government has also made the provision that if multiple tenants stay at the same place and pay total rent of Rs 50,000 and above per month, they need not deductTDS. But, all tenants’ names should be in the registered agreement with the owner. On the other hand, if the entire rent is paid by a single tenant and the others are merely paying that person, then TDS is applicable. Clearly, CBDT has given relief to people staying together, especially in big cities and paying high rent to stay near their office or for any other reasons.

Meaning of Rent
Rent for the above purpose means any payment made under any lease, sub-lease, tenancy or any agreement for the use of land or building or both.

Various relaxations has been given so as to ease the process of TDS such as:

No requirement of TAN Number
Individual/HUF (other than those who need to get a tax audit done) need not get a TAN number to deduct TDS. TAN number is basically the Tax deduction and collection account number that is mandatory if one has to deduct TDS under the income tax act. This requirement has been relaxed.

TDS not to be deducted every month but only ONCE an year

TDS is to be deducted once in a financial year. It can be either deducted at the time of credit of the rent to the account of payee (landlord) for the last month of the financial year OR the last month of the tenancy if the property is vacated during the year. It can also be deducted at the time of payment, whichever is earlier.

For example Ram is paying a rent of Rs 52,000 per month. Now as per the changes in budget 2017, he will pay Rs 52000/month but while making the payment of the rent for March, 2018, he is required to deduct TDS @ 5% on the total rent paid for the year F.Y 2017-18. TDS works out to 5%(Rs 52,000 x12) or Rs 31,200. In the last month, Ram can pay the landlord Rs 50,000-31,200 = Rs 18,800. He has to then deposit Rs 31,200 with the income tax department. He will also need PAN of the landlord.
 And suppose he vacates the house in Dec 2017, then he is required to deduct TDS@5% while making the payment of rent for Dec, 2017
Submit Challan 26QC for Payment of TDS
TDS deducted should be paid within 30 days from the end of the month in which the tax is deducted. It shall be accompanied by a challan (cum) statement in Form 26QC. The TDS so deducted can be paid to the government electronically through any authorized bank.

Furnish Form 16C as Certificate for TDS Deduction to Payee
Form 16C is a new TDS certificate introduced by the government of India. It reflects the amount of TDS deducted on rent @ 5 % by the individual/HUF (u/s 194IB).  It is just like Form 16 or Form 16Aissued in the case of salary and other payments respectively. The person deducting the TDS on the rent is required to furnish Form 16C to the payee within 15 days from the due date of furnishing challan cum statement in Form 26QC.

For instance:
Sharad, who is a salaried employee is paying a rent of Rs 60,000 per month. He deducted the TDS @5% for the whole year in the month of March. The amount of TDS comes out to be Rs 36,000 (5%*7,20,000). Now this TDS should be deposited along with Form 26QC before 30th April, i.e. within 30 days from the end of the month in which TDS is deducted. Also, Vijay should furnish the Form 16C to the landlord before 15th May, i.e. within 15 days from the due date of furnishing challan cum statement in Form 26QC.

You can download form 16C or Form 26QC online from TRACESwebsite.

(Shubham is a Chartered Accountant and MBA (Finance). She is on the forum of “Economic Times” experts on Taxation.   She specialises in Individual Taxation and Taxation of Freelancers & Small businesses. She can be reached on for answering your tax related questions.)
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